Self Assessment Payments on Account: How They Work and When They Apply

Self Assessment payments on account are advance payments towards a taxpayer’s next Income Tax bill. They usually apply to self-employed individuals, landlords and other taxpayers whose Income Tax is not collected mainly through PAYE or another deduction-at-source arrangement.

This guide explains who must make payments on account, how HMRC calculates each instalment, the relevant Self Assessment payment deadlines, and when a balancing payment becomes due. For a broader understanding of how payments on account fit into the UK personal tax system as a whole, our ultimate guide to personal tax in the UK covers income tax, reliefs and reporting obligations in more depth.

Payments on account can create significant cash-flow pressure, particularly in the first year they apply. Understanding the calculation before the January deadline gives you time to check HMRC’s figures, budget for the payment and request a reasonable reduction where your tax liability is genuinely expected to fall.

What Are Self Assessment Payments on Account?

Payments on account are advance contributions towards the Income Tax and, where applicable, Class 4 National Insurance that HMRC expects you to owe for the current tax year.

They are not an additional tax, penalty or separate charge. The amounts paid are credited against your final Self Assessment liability when your tax return for that year is completed.

Most affected taxpayers make two instalments:

• The first payment on account is due by midnight on 31 January
• The second payment on account is due by midnight on 31 July

Each instalment is normally 50% of the relevant Self Assessment liability for the previous tax year. Together, the two instalments usually equal the previous year’s qualifying liability.

What Do Payments on Account Cover?

HMRC payments on account normally cover:

• Income Tax payable through Self Assessment
• Class 4 National Insurance contributions for self-employed taxpayers
• certain other Income Tax liabilities included within the Self Assessment calculation.

They do not normally include:

• Capital Gains Tax
• student loan repayments, or
• other amounts that are specifically payable as part of the final balancing payment.

Capital Gains Tax and student loan repayments may therefore increase the amount due on the following 31 January, even when both payments on account have been paid in full.

Who Has to Make Payments on Account?

You will usually need to make payments on account when your previous year’s relevant Self Assessment liability was £1,000 or more and less than 80% of your total tax liability was collected outside Self Assessment.

This can affect:

• sole traders and other self-employed individuals
• landlords receiving taxable rental income
• partners in business partnerships
• individuals receiving substantial dividend or savings income
• people with taxable foreign income and
• taxpayers with several income sources that are not fully taxed through PAYE.

When Payments on Account Do Not Apply

You will not normally be required to make payments on account if either of the following applies:

• Your relevant Self Assessment liability for the previous tax year was less than £1,000.
• At least 80% of your total tax liability was already collected at source, such as through PAYE.

The £1,000 test is based on the relevant amount used for the payments-on-account calculation. It should not be assumed that every figure appearing on a Self Assessment statement forms part of that test.

For example, Capital Gains Tax and student loan repayments can be payable through Self Assessment but are excluded when HMRC calculates payments on account.

Does Employment Income Prevent Payments on Account?

Being employed does not automatically prevent payments on account. An employee may still need to make them if they also have substantial self-employment income, rental profits, dividends, savings income or other untaxed income.

The relevant question is how much tax remains payable through Self Assessment after taking account of PAYE and other tax deducted at source.

How HMRC Calculates Payments on Account

HMRC generally starts with the previous year’s qualifying Income Tax and Class 4 National Insurance liability. Tax already deducted at source is taken into account, while amounts such as Capital Gains Tax and student loan repayments are excluded.

The remaining relevant amount is divided into two equal instalments:

First payment on account = previous year’s relevant liability × 50%

Second payment on account = previous year’s relevant liability × 50%

Payments on Account Calculator Example

Assume your 2025/26 Self Assessment calculation includes:

Your payments on account for 2026/27 would normally be:

• £3,000 due on 31 January 2027; and
• £3,000 due on 31 July 2027.

The two payments would provide £6,000 towards your eventual 2026/27 Self Assessment liability.

Why the First January Payment Can Be So High

The first year of payments on account often produces a larger January bill than taxpayers expect. This is because the amount due on 31 January can include both:

• the balancing payment for the tax year that has already ended; and
• the first payment on account for the following tax year.

For example, suppose your 2025/26 relevant tax liability is £6,000 and you have not previously made payments on account. On 31 January 2027, you may need to pay:

A further £3,000 would normally be due as the second payment on account on 31 July 2027.

This does not mean you have been taxed twice. The £6,000 in payments on account will be credited against your eventual 2026/27 liability.

Self Assessment Payment Deadlines for 2026 and 2027

The relevant payment deadline depends on the tax year to which the payments on account relate.

The online filing and payment deadline for the 2025/26 Self Assessment tax return is 31 January 2027. Taxpayers who are required to make payments on account also have a separate second-instalment deadline on 31 July.

What Is a Balancing Payment?

A balancing payment is the difference between your final tax liability for a year and the payments on account already made towards it.

Once your Self Assessment tax return is completed, HMRC compares:

• the final amount due for the tax year and
• the payments on account already credited to that year.

When the Final Liability Is Higher

Suppose you paid two payments on account of £3,000, giving total advance payments of £6,000. If your final liability is £7,500, the balancing payment would be:

£7,500 final liability − £6,000 payments on account = £1,500 balancing payment

The £1,500 would normally be payable by 31 January following the end of the tax year.

When the Final Liability Is Lower

If your final liability is £5,000 but you have already made £6,000 in payments on account, your account will show a £1,000 overpayment.

That amount may be:

• repaid to you
• left on your Self Assessment account or
• set against another tax amount that is due.

How to Reduce Payments on Account

You can ask HMRC to reduce payments on account when you have reasonable grounds to expect that your relevant tax liability will be lower than the amount on which HMRC’s calculation is based.

A reduction may be appropriate where:

• your self-employed profits have fallen
• your rental income or property profits have reduced
• you have stopped trading or ceased letting a property
• your allowable business expenses have increased
• you expect to receive more tax relief
• more of your income will be taxed through PAYE
• more tax will be deducted at source or
• a significant source of untaxed income will not continue.

HMRC allows taxpayers to submit a reduction request online or by using form SA303. The claim should state the revised amount and the grounds on which you expect the liability to be lower.

How to Make a Reduction Online

1. Sign in to your HMRC online account.
2. Open the Self Assessment section.
3. View your latest return or account position.
4. Select the option to reduce payments on account.
5. Enter the revised amounts and explain why your expected liability has fallen.
6. Review the revised statement after HMRC processes the claim.

How to Use Form SA303

If you are not making the claim online, you can complete form SA303 and send it to HMRC. An accountant or tax agent can also make a claim on your behalf.

A claim can be amended if your expectations later change. For example, if you initially reduce the payments too far but your profits subsequently recover, you can submit a revised claim increasing the instalments.

What Is the Deadline for Reducing Payments on Account?

A claim to adjust payments on account may generally be made up to 31 January following the end of the tax year to which the payments relate.

For example, a claim concerning payments on account for the 2026/27 tax year would generally need to be made by 31 January 2028. However, it is usually better to submit the claim before the relevant payment deadline so that your HMRC statement reflects the revised amount before payment is due.

What Happens If You Reduce Payments on Account Too Far?

A reduction should be based on a reasonable estimate rather than an arbitrary figure chosen to ease short-term cash flow.

If your final liability is higher than the reduced payments, HMRC can charge late payment interest on the difference between:

• the reduced amount paid, and
• the amount that should have been paid based on the final liability.

The interest is calculated from the original due date of each underpaid instalment, not merely from the date your tax return is completed.

Example of an Excessive Reduction

Suppose HMRC originally requests two payments on account of £4,000 each. You reduce them to £2,000 each because you expect your profits to fall.

Your final results show that each payment should have been £3,500. You have therefore underpaid each instalment by £1,500.

HMRC may charge interest on:

• £1,500 from the first instalment’s 31 January due date, and
• £1,500 from the second instalment’s 31 July due date.

If your forecast changes during the year, updating the claim and paying the additional amount promptly can reduce the interest that continues to accrue.

Do You Need to Increase Payments When Profits Rise?

You are not normally required to increase payments on account simply because you expect your current-year income or profits to be higher than the previous year.

The statutory instalments remain based on the earlier year’s relevant liability. Any additional tax will normally become payable as a balancing payment on the following 31 January.

However, voluntarily setting money aside or making additional payments to HMRC may help prevent a large balancing payment from creating future cash-flow pressure.

What Happens If a Payment on Account Is Late?

HMRC normally charges late payment interest from the day after a payment becomes overdue until the outstanding amount is paid.

The rate can change over time because it is linked to the Bank of England base rate. Taxpayers should therefore check the current HMRC rate rather than relying on an older percentage quoted in a previous tax calculation or article.

HMRC’s published late payment interest rate was 7.75% from 9 January 2026, but the rate remains subject to change.

Can Late Payment Penalties Apply?

Late payment penalties can also apply to overdue Self Assessment tax. Under the existing Self Assessment penalty system, penalties may be charged at:

• 30 days after the payment deadline
• six months after the payment deadline, and
• 12 months after the payment deadline.

Each penalty can be calculated as 5% of the tax remaining unpaid at the relevant date. Late payment interest is separate and may continue to accrue alongside the penalties.

The government may reform tax payment arrangements and penalty rules in future. Taxpayers should follow the rules applying to the particular tax year and liability concerned rather than assuming that announced or consulted-on changes are already in force.

Late Filing and Late Payment Are Different

The penalties for filing a Self Assessment return late are separate from the interest and penalties charged for paying tax late.

You can therefore face:

• a filing penalty even when no tax is due
• late payment interest even when the tax return was submitted on time, or
• both filing and payment penalties when neither obligation was met.

What to Do If You Cannot Pay on Time

Do not ignore an amount because you cannot pay it in full. Interest will normally continue to accrue, and waiting may reduce the payment options available. This is particularly relevant if you’re struggling to fund your July tax payment, since acting early gives you more options than waiting until the deadline has already passed.

Consider a Time to Pay Arrangement

HMRC may agree a Time to Pay arrangement that allows an outstanding Self Assessment bill to be paid in instalments. Eligibility depends on the amount owed, filing position, previous payment history and ability to maintain the proposed payments.

A payment arrangement does not normally remove the underlying tax or automatically cancel interest, but it can help prevent the debt from escalating through missed collection contact or enforcement action.

Use a Budget Payment Plan Before the Deadline

Taxpayers who are up to date with their Self Assessment payments may be able to use HMRC’s Budget Payment Plan to make voluntary weekly or monthly payments towards a future bill.

This does not change the statutory deadlines, but it can spread the cash-flow cost across the year and reduce the amount outstanding on 31 January or 31 July.

How Making Tax Digital Affects Payments on Account

Making Tax Digital for Income Tax began applying from 6 April 2026 to qualifying sole traders and landlords with qualifying income above the relevant threshold.

MTD changes how affected taxpayers keep digital records and submit information to HMRC. It does not, by itself, replace the existing January and July payments-on-account system.

An individual within MTD may therefore need to manage several separate obligations:

• maintaining digital accounting records
• submitting quarterly updates through compatible software
• completing the year-end Self Assessment process
• paying any balancing payment by 31 January, and
• making payments on account on 31 January and 31 July where required.

MTD quarterly updates should not be treated as quarterly tax bills. Payments remain due under the applicable Self Assessment payment rules unless HMRC introduces and implements a formal change.

Common Payments on Account Mistakes

Assuming the January Amount Is a Duplicate Charge

The first payment on account is an advance payment for the following tax year. It is separate from the balancing payment for the year already completed, but it will be credited against the next return.

Ignoring the 31 July Deadline

Some taxpayers focus only on the 31 January filing deadline and overlook the second payment on account due on 31 July. HMRC can charge interest when this instalment is late even though no tax return is due in July. If your circumstances have changed since January, it’s worth checking whether you can reduce your 31 July tax payment on account before this second instalment falls due.

Reducing the Payments Without a Calculation

A reduction should be supported by a realistic projection of taxable income, allowable expenses, tax relief and tax already deducted at source.

Using Turnover Instead of Taxable Profit

For a sole trader, Income Tax is generally calculated using taxable business profit rather than gross sales. A fall in turnover does not always produce the same percentage reduction in taxable profit.

Forgetting Other Sources of Income

A taxpayer may expect business profits to fall but still receive higher rental income, dividends, savings interest or employment income. A proper estimate should consider the overall Self Assessment position.

Assuming HMRC Will Automatically Reduce the Instalments

HMRC generally continues to use the previous year’s liability unless a valid claim is submitted or the relevant tax return changes the amounts due.

Confusing Payments on Account With Capital Gains Tax

Capital Gains Tax is normally excluded from the payments-on-account calculation. A significant disposal can therefore result in a large balancing payment even though the Income Tax instalments were paid correctly.

How to Check Whether HMRC’s Calculation Is Correct

Your Self Assessment statement or online tax account should show whether payments on account are due and the amount of each instalment.

Before paying or requesting a reduction, check:

1. The tax year to which each amount relates.
2. The previous year’s Income Tax and Class 4 National Insurance liability.
3. Tax deducted through PAYE or at source.
4. Whether Capital Gains Tax and student loan amounts have been excluded from the instalment calculation.
5. Payments already made and any credits on the account.
6. Whether an earlier reduction request has been processed.
7. Whether your forecast for the current tax year supports a further adjustment.

If you file close to the deadline, HMRC may not issue a separate statement before payment is due. You may need to use the tax calculation and online account to confirm what must be paid.

Planning for Payments on Account

Payments on account are easier to manage when tax is treated as an ongoing business cost rather than a once-a-year expense.

Practical steps include:

• maintaining current bookkeeping records
• estimating taxable profit during the year
• setting aside a proportion of income for tax
• reviewing the expected January bill well before filing
• filing the tax return early enough to identify the actual liability
• checking whether a reduction is justified before each instalment
• using a separate savings account for tax reserves.

Filing early does not bring the payment deadline forward. It gives you earlier visibility of the balancing payment and the next payments on account, allowing more time to plan.

When Professional Advice May Be Helpful

Professional advice may be useful where:

• you are facing payments on account for the first time
• your income comes from several taxable sources
• your profits have fallen and you are considering a reduction
• you have stopped trading or sold a rental property
• your Self Assessment statement does not match your records
• you have made an excessive reduction in an earlier period
• you are affected by Making Tax Digital for Income Tax, or
• you cannot pay the amount due by the statutory deadline.

CIGMA Accounting can review your Self Assessment calculation, confirm whether payments on account apply and prepare a reasonable current-year tax estimate. This can help you avoid paying more than necessary in advance without creating an avoidable interest charge through an unsupported reduction.

Self Assessment Payments on Account Case Study

Tom, a self-employed consultant, visited our Wimbledon office after receiving a much larger Self Assessment bill than he had expected in January. He thought HMRC had charged him twice because his statement included both his tax for the previous year and an additional amount labelled Self Assessment payments on account.

After reviewing his tax calculation, we explained that payments on account are advance payments towards the following year’s Income Tax and Class 4 National Insurance rather than an extra tax charge. We showed Tom how HMRC calculates each instalment using the previous year’s qualifying tax liability and why first-time payments on account often come as a surprise.

As we discussed his business, Tom mentioned that his profits had fallen significantly because several contracts had ended. We explained that taxpayers whose income is genuinely expected to be lower may be able to reduce payments on account by submitting a reasonable estimate to HMRC before the payment deadline. However, any reduction should be based on realistic projections because reducing the payments too far can result in late payment interest if the final liability is higher than expected.

By the end of the meeting, Tom understood that HMRC payments on account are designed to spread future tax liabilities rather than increase them. Regularly reviewing business profits, filing Self Assessment returns early and monitoring expected income throughout the year can help taxpayers budget more effectively and avoid unexpected tax bills.

Understand Self Assessment Payments on Account With Expert Support From Cigma Accounting in London

Understanding Self Assessment payments on account is essential if you’re self-employed or receive untaxed income, as these advance tax payments can significantly affect your cash flow throughout the year. Cigma Accounting supports clients across the Farringdon, including individuals and businesses in Chancery Lane and Liverpool Street, helping taxpayers understand how payments on account are calculated and how to meet their HMRC obligations.

Your HMRC payments on account are generally based on your previous year’s tax liability, with instalments due under the Self Assessment payment deadlines. Using a payments on account calculator can help estimate upcoming payments, while in some circumstances you may be able to reduce payments on account if you expect your current year’s tax bill to be lower than the previous year.